The Hon’ble Delhi High Court in Sharma Trading Company v. Union of India & Ors., order [W.P.(C) 13194/2018 order dated September 23, 2025] held that when GST rates are reduced, the benefit must be passed directly to consumers through a corresponding reduction in the product’s price, and simply increasing the product quantity without reducing the maximum retail price (MRP) amounts to deception. The court emphasized that such practices defeat the purpose of tax cuts and curtail consumer choice, reaffirming that price reduction is mandatory under Section 171 of the CGST Act.
Facts:
Sharma Trading Company (‘the Petitioner’), a distributor of Hindustan Unilever Limited (HUL), involved in the sale of goods, including Vaseline VTM 400 ML.
Union of India, under the authority of the National Anti-Profiteering Authority (‘NAPA’), which issued orders alleging profiteering after a complaint that the Petitioner did not pass on the benefit of GST rate reduction to consumers.
The Petitioner challenged the Constitutionality of Section 171 of the CGST Act and related Rules, arguing that the anti-profiteering authority’s orders were arbitrary, lacked fair procedure, and were based on incorrect interpretation of the law.
The Respondents defended the provisions as valid, citing their broad scope and the necessity of anti-profiteering measures for consumer protection.
The Petitioner contended that the orders were capriciously passed, violating principles of natural justice and procedural fairness. They approached the Court under Article 226 seeking quashing of the orders.
Issue:
Whether the non-passing of GST rate-cut benefits to consumers by increasing the quantity of a product without reducing the price amounts to deception and violates the provisions of Section 171 of the CGST Act, 2017?
Held:
The Hon’ble Delhi High Court in W.P.(C) 13194/2018 held as under:
- Observed that, Section 171 of the CGST Act, 2017 and Rules 122, 124, 126, 127, 129, 133 and 134 of the CGST Rules, 2017 are Constitutionally valid and form a complete and necessary regulatory mechanism to ensure that the benefits of GST rate reductions or input tax credits are passed on to consumers.
- Noted that the scope of powers of the Director General of Anti-Profiteering (DGAP) under Rule 129 of the CGST Rules is wide and not confined only to the goods or services mentioned in the complaint, allowing investigations into allied and unenumerated matters necessary for consumer protection.
- Held that, ignorance of consumers or complexity of the supply chain cannot be permitted to defeat the welfare objective of the anti-profiteering provision.
- Held that, the impugned order by the NAPA correctly concluded that the Petitioner had profiteered by increasing the base price of the product (Vaseline VTM 400 ML) in a manner that offset the GST rate reduction, violating Section 171 of the Act.
- Held that, increasing the quantity or volume of a product or offering additional freebies does not absolve the supplier from the obligation to pass on the tax benefit by commensurate price reduction.
- Rejected the Petitioner’s contentions that commercial schemes justified maintaining prices; such efforts cannot defeat the statutory mandate to pass on GST benefits to the consumer.
- Noted that the benefit must be passed at the level of each supply and calculated SKU-wise; failure to do so results in liability to pay the profiteered amount with interest.
- Directed that, the profiteered amount of Rs. 5,55,126/- be transferred to the Consumer Welfare Fund as per the impugned order, confirming that quantum and interest calculations were proper.
- Further emphasized on procedural fairness by requiring that any deviation or arbitrary exercise of powers beyond jurisdiction or ignoring genuine cost factors be adjudicated on merits, without invalidating the statutory provisions themselves.
Our Comments:
The Court’s affirmation of the legality of the anti-profiteering regime aligns with prior judicial pronouncements, such as the judgment in Reckitt Benckiser India Pvt. Ltd. v. Union of India [W.P.(C)7743/2019 order dated January 29, 2024], which upheld the provisions as a necessary measure for consumer protection and economic fairness.
Relevant Provisions:
Section 171, CGST Act, 2017:
“171. Antiprofiteering measure.-
(1) Any reduction in rate of tax on any supply of goods or services or the benefit of input tax credit shall be passed on to the recipient by way of commensurate reduction in prices.
(2) The Central Government may, on recommendations of the Council, by notification, constitute an Authority, or empower an existing Authority constituted under any law for the time being in force, to examine whether input tax credits availed by any registered person or the reduction in the tax rate have actually resulted in a commensurate reduction in the price of the goods or services or both supplied by him.
Provided that the Government may by notification, on the recommendations of the Council, specify the date from which the said Authority shall not accept any request for examination as to whether input tax credits availed by any registered person or the reduction in the tax rate have actually resulted in a commensurate reduction in the price of the goods or services or both supplied by him.
Explanation 1.––For the purposes of this sub-section, “request for examination” shall mean the written application filed by an applicant requesting for examination as to whether input tax credits availed by any registered person or the reduction in the tax rate have actually resulted in a commensurate reduction in the price of the goods or services or both supplied by him.
Explanation 2.––For the purposes of this section, the expression “Authority” shall include the “Appellate Tribunal
(3) The Authority referred to in sub-section (2) shall exercise such powers and discharge such functions as may be prescribed.
(3A) Where the Authority referred to in sub-section (2), after holding examination as required under the said sub-section comes to the conclusion that any registered person has profiteered under sub-section (1), such person shall be liable to pay penalty equivalent to ten per cent. of the amount so profiteered:
Provided that no penalty shall be leviable if the profiteered amount is deposited within thirty days of the date of passing of the order by the Authority.
Explanation.-For the purposes of this section, the expression “profiteered” shall mean the amount determined on account of not passing the benefit of reduction in rate of tax on supply of goods or services or both or the benefit of input tax credit to the recipient by way of commensurate reduction in the price of the goods or services or both”
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